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    Growth Rate of Sale For The Next 10 Years 2. Synergies Expected 3. Growth Rate Assumed While Calculating The Terminal Cash Flow

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    Srajan Agadi
    Polo Tyres is considering acquiring 51% stakes in ABC Ltd, an Indian company that manufactures car tyres. The tyre industry is expected to grow significantly in India as car production increases from the current 2.5 million cars per year to a conservative estimate of 4 million cars over the next five years. Polo Tyres has better manufacturing processes and financial performance than ABC Ltd, with higher profit margins. To accurately value ABC Ltd using a discounted cash flow technique, assumptions must be made about future sales growth, expected synergies from the acquisition, and long-term growth rates.

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    Growth Rate of Sale For The Next 10 Years 2. Synergies Expected 3. Growth Rate Assumed While Calculating The Terminal Cash Flow

    Uploaded by

    Srajan Agadi
    15 views1 page
    Polo Tyres is considering acquiring 51% stakes in ABC Ltd, an Indian company that manufactures car tyres. The tyre industry is expected to grow significantly in India as car production increases from the current 2.5 million cars per year to a conservative estimate of 4 million cars over the next five years. Polo Tyres has better manufacturing processes and financial performance than ABC Ltd, with higher profit margins. To accurately value ABC Ltd using a discounted cash flow technique, assumptions must be made about future sales growth, expected synergies from the acquisition, and long-term growth rates.

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    Polo Tyres is considering acquiring 51% stakes in ABC Ltd, an Indian company that manufactures car tyres. The tyre industry is expected to grow significantly in India as car production increases from the current 2.5 million cars per year to a conservative estimate of 4 million cars over the next five years. Polo Tyres has better manufacturing processes and financial performance than ABC Ltd, with higher profit margins. To accurately value ABC Ltd using a discounted cash flow technique, assumptions must be made about future sales growth, expected synergies from the acquisition, and long-term growth rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    15 views1 page

    Growth Rate of Sale For The Next 10 Years 2. Synergies Expected 3. Growth Rate Assumed While Calculating The Terminal Cash Flow

    Uploaded by

    Srajan Agadi
    Polo Tyres is considering acquiring 51% stakes in ABC Ltd, an Indian company that manufactures car tyres. The tyre industry is expected to grow significantly in India as car production increases from the current 2.5 million cars per year to a conservative estimate of 4 million cars over the next five years. Polo Tyres has better manufacturing processes and financial performance than ABC Ltd, with higher profit margins. To accurately value ABC Ltd using a discounted cash flow technique, assumptions must be made about future sales growth, expected synergies from the acquisition, and long-term growth rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    ABC Ltd is an Indian company that manufactures car tyres.

    Polo tyres another tyre company


    is considering acquiring 51 % stakes in ABC Ltd.

    The tyre industry is expected to grow sharply in the near future. India manufactures about 2.5
    million cars per annum. The number can grow (optimistically) to 6 million cars over the next
    five years. The conservative estimate is 4 million tyres.

    Past forecasts on the Indian car industry have often missed the mark.

    Polo tyres has material to sales ratio of 55 % against the same ratio of 58 % for ABC Ltd. The
    difference is attributed to the superior manufacturing processes of Polo tyres.

    The net profit ratio of polo tyres was 15 % against 7 % of ABC Ltd.

    What assumptions will you make to get a realistic valuation of the ABC Ltd share using the
    DCF technique?

    A low valuation could mean Polo tyres could lose the deal to Lego tyres which is also eyeing
    ABC Ltd.

    In particular state your assumptions about the

    1. Growth rate of sale for the next 10 years


    2. Synergies expected
    3. Growth rate assumed while calculating the terminal cash flow

    Use the data given above and your understanding of the Indian and global economy and car
    industry to make the assumptions

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